Miliband promises banks 'reckoning'

Ed Miliband is promising a "reckoning" with the banks if Labour wins power, with the big five High Street giants forced to give up "significant" numbers of branches to make way for new competitors.

In a keynote speech on the economy, Mr Miliband will say that the financial services industry has been "an incredibly poor servant of the real economy", and will blame lack of competition in the sector for mis-selling scandals and a £56 billion drop in lending to business since 2010.

The Labour leader will promise to introduce a legal maximum threshold for any bank's share of the market in personal accounts and small business lending, with powers to force the sale of branches and block mergers and acquisitions to prevent it being breached.

A Labour government would instruct the Competition and Markets Authority to report within six months of the May 2015 general election on the level at which the threshold should be set and the timetable for the sell-off of branches, which should be completed by 2020.

Changes would be designed to improve the price and quality of lending to small businesses and services to individual customers, and to create at least two new "challenger" banks with significant shares of the market, said Labour.

In his speech at the University of London, Mr Miliband will say: "Of course, financial services are an important industry in itself. But for an industry that calls itself a 'service', it has been an incredibly poor servant of the real economy. Not just since 2010 - or 2008 - but for decades in this country.

"We need a reckoning with our banking system, not for retribution, but for reform."

Citing US laws which prevent any bank getting too big, Mr Miliband will say: "If we carry on as we are, we will end up stuck with the same old banks dominating our high street: the old economy.

"In America, by law, they have a test so that no bank can get too big and dominate the market. We will follow the same principle for Britain and establish for the first time a threshold for the market share any one bank can have of personal accounts and small business lending."

Labour would also introduce a new National Credit Register for small and medium-sized businesses, to increase competition and improve lending to small business by allowing all banks access to comprehensive data on their credit histories.

Mr Miliband's speech is intended to put further flesh on the bones of Labour's economic policy agenda for the next Parliament, building on his warnings of a "cost-of-living crisis" and his promise of a freeze on energy prices.

He will reject Tory claims - made by David Cameron at Prime Minister's Questions this week - that falling inflation has taken the steam out of his cost-of-living argument.

"This Government thinks it is all going to be OK because this year the forecasts say that average wages will eventually overtake prices," Mr Miliband will say.

"Let's hope that happens. But I really warn this Government - if they think a few months of better statistics will solve this crisis, they are just demonstrating again that they have absolutely no idea about the scale of the problem or the solutions required.

"This cost-of-living crisis is about who gets the rewards, not just the averages: ordinary people or just those at the top? It is about the nature of work and whether it is secure or insecure. It is about the prospects for people's kids and the quality of jobs. It is about decent homes at affordable prices. It is about a strong sense that this cost-of-living crisis has been coming for a long time."

The cost of living is "the single greatest challenge our country faces", but rather than taking action to tackle it, the Government is "clinging on to the old economy because they think low wages, insecure work, the hope of a bit of wealth trickling down from the top is the way Britain succeeds," Mr Miliband will say.

Critics of the Labour plan are likely to point to comments from Bank of England Governor Mark Carney earlier this week, when he supported the view that a cap on banks' market share "would not result in substantial improvement to competition".

"This is not about whether we should have new banks - that is the question this Government is still asking - but about how," he will say.

"It is not about creating new banks that control some tiny proportion of the market. But new banks that have a substantial proportion and can compete properly with existing banks.

"And we are not asking whether existing banks might have to divest themselves of a significant number of branches. We are asking how we make that happen.

"After decades of banking becoming more and more concentrated, Labour will turn the tide.

"I want to send a message to our small and medium-sized businesses - under a Labour government, you will no longer be serving the banks. Instead, the banks will be serving you: you will have a better chance of getting the support you need to grow your business, employ more people, at decent wages, making profits and helping Britain succeed."

Financial Secretary to the Treasury Sajid Javid said: "Britain's hard-working people have been made poorer by the worst recession in a century - a recession caused by the Labour Government that Ed Miliband was at the heart of.

"So Ed Miliband is complaining that his own mess isn't being cleaned up fast enough.

"The only way to ensure a better, sustainable and more financially secure future for people who work hard and for their families is to continue working through David Cameron's long term economic plan - reducing the deficit, creating jobs, cutting taxes, giving young people the skills they need to get on and fixing the welfare system so that it pays to work."

The proposals for a cap and market share and enforced branch disposals met with criticism from employers' organisation the CBI.

"It's not for politicians to dictate market structures - they must allow competition authorities to do their job."

"There are already new entrants making an impact on the market without the need for artificially carving up existing bank branches."

She said the sector was already moving in the right direction "with several new players arriving on the scene, boosted by seven-day switching and a simpler authorisation system for new banks.

"More can always be done and it's right to focus on the availability of credit data, but imposing arbitrary caps on market share is too simplistic."

Improving access to credit data was a welcome measure to tackle barriers to entry and growth in banking and inform better lending decisions, she said.

"Of course, data can never replace good relationship banking and sound judgment."

Financial Secretary to the Treasury Sajid Javid said: "Britain's hard-working people have been made poorer by the worst recession in a century - a recession caused by the Labour Government that Ed Miliband was at the heart of.

"So Ed Miliband is complaining that his own mess isn't being cleaned up fast enough.

"The only way to ensure a better, sustainable and more financially secure future for people who work hard and for their families is to continue working through David Cameron's long term economic plan - reducing the deficit, creating jobs, cutting taxes, giving young people the skills they need to get on and fixing the welfare system so that it pays to work."

The proposals for a cap and market share and enforced branch disposals met with criticism from employers' organisation the CBI.

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